For many young and middle-of-the-road families out there the RRSP vs RESP account debate is a very real one that usually creeps up right around tax time every year if not more often. It is often a confusing topic for some people because the financial industry spends a lot of money trying to convince parents that they need to max out RRSP and RESP accounts, and it is often extremely difficult to do both as people seek to balance mortgages, student debt, and life (that pesky life, always seems to get in the way of the raw numbers right?). There are obviously numerous aspects of each person’s financial situation that will come into play when looking at whether a RRSP or an RESP contribution is right for them.
What the Baby Boomers can teach us about saving for retirement
Hey guys, this is a guest post by Carly who wanted to talk about her experience writing for a baby boomer/ retirement magazine and what it taught her about personal finance.
We see stories in the news every day about how the Baby Boomer wave is hitting retirement age, and many are finding themselves caught unprepared. But why? The BMO Retirement Institute reports boomers over the age of 55 are not serious about planning for retirement. Only 54 per cent of those surveyed have ever tried calculating a financial goal for retirement; less than half (45 per cent) have consulted with a financial planner; and 43 per cent do not consider themselves knowledgeable about making financial investments, according to the report.
If that’s not enough to convince a 20-something to set up a retirement savings plan, I don’t know what is. However, not all of the Generation-Y pack care to acknowledge the financial crisis currently striking down on those more than twice our age. We’re still a long way from 65, the standard age for retirement. This makes it difficult for certain individuals to make the connection, and to start taking retirement seriously as early as their 20s. We’re too busy settling into our careers, searching for life-long partners,
paying off student debt and saving to buy our first homes.
A recent article in The Globe and Mail (editor’s input: by none other than Preet Banjeree!) reads, “With borrowing up and savings rates down, many Canadians are spending all they make now. And if that wasn’t bad enough, some are also borrowing from future earnings. Canadian debt-to-income levels hit an all-time high this year. That means some people are on track to spend every dollar they will ever earn in their lifetime before they even retire.”
In other words, we’re headed for an even rougher path than our elders.
The article goes on to explain recent findings published in the Journal of Marketing Research, where authors discovered that if subjects were presented with an image showing an aged version of themselves, they were more likely to put an imaginary grant of $1,000 into a retirement fund than those who were not offered the image. This suggests in order for us youngsters to take seriously our plans for retirement, we need to be able to make some sort of connection to our future, gray-haired selves.
After reading this myself, it was like a light bulb went off. I am a prime example of this suggestion. All this time, I have credited the positive turn in my financial habits to the swift slap of the real world, which occurred abruptly after graduating from university with a total of $28,000 in student loan debt.
But it was more than that.
In November of 2010, about 7 months after graduating (and just after my lovely 6 month OSAP “grace period” came to an end), I scooped up the opportunity to do some freelance writing for Zoomer. For those who are unfamiliar with the magazine, it’s a Canadian lifestyle publication for the 45 plus demographic (boomers with “zip”—hence the Zoomer title).
Over the last year I have been putting myself in the shoes of the Baby Boomer, as I write stories for this audience covering a wide-range of topics, including finance. I quickly became aware of all the financial struggles suffered by this generation, especially in terms of retirement woes. And as I did my research and followed along with the publication, I was studying all of the financial advice offered to the boomers and using it to shape my own ways. It wasn’t until I saw the story in The Globe and Mail that I realized this. I had made the connection the study discusses—I can imagine my life at age 65 because I do it every day as part of my job.
So I guess I have the Baby Boomers to thank for motivating me to make long term financial goals. In a sense, it’s about learning from their mistakes—I refuse to become part of the 54 per cent. Of course, not all of the financial advice offered to the 45 plus demographic is going to apply to someone my age. And you won’t find any tips in Zoomer about paying off your student loans or becoming a first-time home buyer (fortunately, we have PF blogs like Young and Thrifty for that).
Still, the overall message is relative:
retirement is something to look forward to rather than fear.
And the best way for that to happen is to
start planning now.
BIO: Charlotte Bumstead is a freelance writer and blogger, covering a wide-range of topics, including:
health, entertainment, technology and finance. You can find her blog and portfolio on her website or
follow her on Twitter @c_bumstead .
Freedom 65? Keeping your Senior Insured (Safely)
I know this blog is for young people and you are probably no where NEAR thinking about what it will be like when you are 75 and retired. But you may have a grandma or a grandpa who is 85 and driving (or maybe a senior father or a mother if you are a baby boomer).
I’m sorry I’m always talking about seniors. I think it’s because I heart them (I heart them so much that sometimes if I see a cute senior walking down the street I secretly say to myself I want to take them home with me). If you haven’t talked to your loved one about advanced care planning yet, check out my post on it and do so. There, Y&T.ca nag of the day, DONE!
Here are some suggestions on how to help them keep their freedom and what might need to happen if they can’t drive anymore:
Freedom is very very important for older adults (having a car when you turn sixteen is such a monumental milestone for North Americans).
Having (and being able to drive) a car when you are senior means you will be able to keep your freedom. As a senior you will be able to buy your groceries (gotta take advantage of the seniors discounts!), visit friends, visit family, and perhaps even take road trips with your loved one. However because seniors make up the majority of day time accidents (sad but true), many premiums for seniors is no where near the cheap car insurance you can get as a middle aged driver with no accidents under your belt.
Age is Nothing but a Number
Age doesn’t determine whether you are a safe driver or not. I know of many 88 year old drivers who are safe (heck, my previous neighbour mowed his lawn, shoveled his snow, and does everything at 88! He’s a true Scotsman 
). There may be some 75 year old drivers who are dangerous behind the wheel because of decreased vision. A lot of other determinants affect how well one performs behind the wheel.
(more…)
Gold Plated Pensions – A Blessing Or A Curse?
This guest post was written by Robb Engen, who blogs about Canadian personal finance at Boomer & Echo. Together with his mom, (she’s the Boomer, he’s the Echo) they offer their own unique perspectives on saving, investing and personal finance. Add Boomer & Echo to your RSS reader today!
Did you know that the average person will stay in the same job for less than 5 years? This means that you will likely have at least 6 to 10 different jobs throughout your entire working life.
For the 29% of Canadian workers who currently contribute to a defined benefit pension plan this presents a bit of a challenge, especially for younger employees.
The Golden Retirement Plan
A gold-plated pension has been seen as a blessing for Canadian workers for decades, but these pension plans are now hard to come by outside of the public sector. Employees lucky enough to have such a plan were thought to be set for life in retirement.
The basics of the defined benefit plan look something like this:
- Employee contributes a certain percentage of their salary towards the public or company pension plan
- Employer matches that contribution
- As your salary increases throughout your career, contributions continue to grow
- Employees max out their pensionable service when they reach the magic number of 85 (age + years of service)
The retirement benefits will vary depending on the type of plan offered by the employer, but a typical defined benefit pension formula can look like this:
2.0% x Years of Service x Best 5 Year Average Salary
Using real numbers, if you were hired by your employer at the age of 25 and worked there for 30 years with your best 5 year average salary of $100,000, your annual pension income would be $60,000.
Set For Life, Or Life Sentence?
As a young worker, there is one number that stands out above all the others. 30 years with the same employer? In order to maximize your defined benefit pension retirement benefits, you need to be in it for the long haul.
That seems almost inconceivable for this generation of employees who fall in and out of love with their jobs faster than Apple updates the iPhone.
I’ve witnessed firsthand the complacency that sets in amongst many public sector employees who do the least amount of work possible in order to collect their paycheque every two weeks until they finally reach that magic number where they can retire and receive their gold-plated pension.
Is that any way to live your life? If complacency is setting in after just 5 or 10 years with the same organization, how in the world are you going to make it for 25+ years? Young workers definitely have to consider this when choosing their long term career.
Leaving The Pension Plan Before Retirement
If you leave the pension plan before your normal retirement date, your eligibility for benefits depends on the length of your pensionable service and your age.
There are three options for those leaving a company with a vested pension:
1. Leave the funds in the plan and collect the pension benefits at the time of retirement.
2. Transfer the funds to a new pension plan, if the new pension plan allows this.
3. Transfer the amount into a locked-in RRSP, or LIRA. A LIRA is similar to a regular RRSP except withdrawals are not allowed until the employee reaches retirement age.
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